Jeremy Thorpe, the Liberal leader, made it clear to Edward Heath that his party expected the Tory leader to stand down as prime minister as the price of Liberal support for a minority Conservative government.

The disclosure is made in the transcripts of the secret telephone conversations between Heath and Thorpe which took place as the Conservative PM battled to hang on to power in the weekend after the inconclusive general election of February 1974.

Heath had gone to the country on the single issue of Who runs Britain - the government or the miners? in the middle of an all-out miners' strike.

For the first time since 1929 no party emerged from the election with an overall Commons majority and Heath, instead of accepting defeat, tried to secure the support of the Liberals for some form of coalition government. During the negotiations, Thorpe empathised with Heath, saying that "this is obviously hell - a nightmare on stilts for you. Somehow I personally hope that we can work something out."

A confidential annex to the cabinet minutes also show that Tory ministers did formally meet and consider a suggestion from Thorpe for a "grand coalition" with the three main parties forming a national government on the Monday after the general election.

The idea was rejected on the grounds that the "the time for it was not ripe" and instead Heath went to the palace and resigned, opening the way for Harold Wilson to form a minority Labour government.

The February 1974 election ended in stalemate with Labour winning 301 seats, the Conservatives on 297 (even though they got more votes), and the Liberals with 14 despite getting nearly six million votes. The precise details of Heath's refusal to accept defeat and instead negotiate some kind of agreement with the Liberals have always been something of a mystery.

The release of the Downing Street files under the 30 year rule show that he went into the negotiations prepared to offer the Liberals two seats in the cabinet, a high level inquiry on electoral reform and even increased worker participation in industry to secure their support. He was willing to contemplate a formal coalition or "an understanding to support the government on measures within a programme to be agreed".

The first difficulty faced by Heath was getting hold of Thorpe, who on the Friday was busy leading a triumphant torchlight procession around the streets of Barnstaple.

It was not until 4 pm on Saturday, March 2, that Thorpe arrived for a secret meeting at Downing Street. The note taken by Robert Armstrong, the PM's principal private secretary, says that Heath argued for a centre-right coalition on the grounds that, unlike Labour, both parties were committed to EEC membership and a statutory incomes policy.

The minutes show that Thorpe asked Heath to consider a "grand alliance" between the three major parties but that the PM did not think that was feasible: "It would split the Labour party. The left wing of the party would never let Mr Wilson enter such a coalition, and Mr Wilson himself would wish to avoid the role and fate of Ramsay MacDonald," report the secret minutes.

Electoral reform

Thorpe then agreed to explore the possibility of Liberal co-operation and asked questions about Northern Ireland and electoral reform. The two met again at Downing Street the following morning and Heath offered Thorpe a speaker's conference on electoral reform.

Thorpe then consulted three senior Liberals, including Jo Grimond and David Steel, before ringing Heath at 6pm later that Sunday to tell him that "we may be moving in a somewhat helpful direction".

There were however two problems: "It is no good beating about the bush. The first is that from my soundings there is a lack of enthusiasm for a proposition such as you suggested, either opposition support or coalition support, in the light of your own position as PM: the feeling being that you called an election and failed to get the mandate that you sought.

"The second position is that before there could be talk of an agreed package of economic proposals, a very strong feeling is felt about the electoral system of the six million and the 14 MPs I believe that with regard to the first matter I raised, I don't believe that that is insuperable, I think that I can handle my party on that issue."

He told Heath that on electoral reform he needed a firm proposal that would be implemented within six to nine months but that with that commitment he could deliver "an actual coalition".

Thorpe said he was "meeting my boys tomorrow" but he felt that if they went into coalition without changing the electoral system they were "simply putting their heads under a chopper".

Heath promised to discuss it with the cabinet and "come back to you as soon as I can". Thorpe replied: "I shall be in the whole evening. And if it is any help, you know if one is asked, if it is any help, we have not been in contact ... I am sorry, this is obviously hell - a nightmare on stilts for you. Somehow I personally hope we can work something out." Heath just replies: "All right, Jeremy. Thank you very much."

The official Downing Street briefing paper, Points For Talk With Mr Thorpe, in the file makes it clear that Heath was not willing to step down, presumably to allow the more consensual Willie Whitelaw to take his place. "No question of change of leadership. Mr Heath elected as leader by the Conservative party, and the party would not countenance any arrangement under which someone else than the elected leader was prime minister," says the note.

Heath went further and got his cabinet colleagues to agree that none of them would serve under a different leader and told the Liberal leader of their support.

Thorpe rejected the idea of Liberals joining the government on the Monday after which Heath's cabinet met for the final time. The cabinet minutes record that Thorpe had suggested calling "a conference of all the party leaders with a view to the formation of a national government". The meeting felt the "time for it was not ripe" and agreed that Heath should tender his resignation to the Queen.

Ironically, when the civil service drew up contingency plans for a possible Conservative victory in the October 1974 general election, Heath explicitly asked them to sketch out how a "government of national unity" might work with reserved seats in the Cabinet for the Liberal party and other "men of goodwill".

The jobs to be offered to the Liberals, should there be a second hung parliament, included education secretary, trade secretary and social services secretary. But in the event Harold Wilson scraped back in with a majority of four - enough to allow Labour to stay in power until Thatcher's victory in 1979.